Radian, MGIC Shares Slump on C-Bass Liquidity Woes

MGIC Investment and Radian Group shares slid Tuesday a day after MGIC disclosed it could lose most of its investment in a subprime credit joint venture the companies co-own.

MGIC and Radian late on Monday said they could be forced to write down the entire value of investments valued at $516 million and $518 million, respectively, in C-BASS, whose full name is Credit-Based Asset Servicing and Securitization.

Shares in MGIC, which agreed in February to acquire Radian in a $5.47 billion deal, were down 10 percent and Radian fell by a similar amount.

Fitch Ratings downgraded the insurer financial strength rating of MGIC to 'AA' from 'AA+' and said it had placed Radian's debt ratings on rating watch negative.

Separately, Bear Stearns cut its recommendation on MGIC shares to "peer perform" from "outperform," estimating that the write down would generate a $3.30-per-share third-quarter loss for the mortgage insurer.

C-BASS on Tuesday said it was in advanced discussions with a number of investors to provide increased liquidity and that it was exploring all options to mitigate the liquidity risk in a difficult market.

C-BASS said its lenders had been demanding that it put up more cash all this year, with lender margin calls totaling $290 million in the first six months of the year amid turmoil in home loans for borrowers with poor credit histories.

The situation worsened in July, though, as C-BASS, which at the beginning of the year had capital of $926 million and $302 million of liquidity, had to meet another $260 million in margin calls during the first 24 days of the month, the venture said.

C-BASS said the margin calls were not justified because nothing in the underlying fundamentals of its portfolio had changed.